Investment management relates to the professional management of various securities (stocks, bonds etc.) to meet specified investment goals for the benefit of investors. Investors may be private or public institutions (insurance and investment companies, pension or mutual funds, etc.) or private individual investors investing on their own, or based on professional advice.
Although many industries, today, are international and global in buying behavior and competition patterns, stock markets continue to show a predominately domestic character. Today's investors still seem to prefer to diversify their portfolios in domestic sector terms, rather than to pick stocks in a borderless world. Furthermore, investors often have little to no information about the relative price-value of competitive global stocks, at the time of their investments.
There may be several reasons for the above behavior. For example, there may be a lack of comparative stock data between stock exchange markets. Even where there is comparable stock data, the available data may be primarily geared towards intermediary actors and other professional investors. In another example, there may be a lack of a relevant stock valuation methodology, especially in terms of providing consistent price-value data for stocks in a unified system.
With respect to comparative stock data, there may be a lack of intrinsic value data on stocks, both domestically and internationally. Moreover, there might not exist a single source with a unified system of such global stock data. While stock information vendors often provide real-time stock data and company financials, the vendors have refrained from providing investors with currency and inflation adjusted intrinsic value data on stocks—both domestically and for stocks listed on foreign stock exchanges.
With respect to valuation, current and past trends in and the methodological basis for the modern professional practice of investment management may be divided into three categories or processes: Value Investment (VI), Modern Portfolio Theory (MPT) and Technical Analysis (TA). These methods are applied in practice by analysts, fund managers and investors. More importantly, they are integrated into a great variety of software products and systems, including automated algorithmic trading using neural networks, pattern recognition and predictive models to initiate trades. However, value investment, for example, uses variables that are focused on per-share analysis of the underlying asset and often disregard the stock and its position in and relative to the stock market on which it is traded. Hence, the VI methodology and its key ratios tend to neglect the stockholder perspective.
While MPT may represent a valuable set of analytical tools, in investment management practice, MPT may often be too advanced a methodology framework for the non-professional. Using MPT tools incorrectly is often worse than no use/analysis at all. For the same reason, MPT is seldom part of the information provided by analysts and brokers to stock market actors, beyond the simplistic and in practice short-term oriented Beta concept, which frequently is presented as a complementary variable, with the unwritten short-term rule for investors to avoid high-Beta stocks.
Technical Analysis (TA) is based on forecasting the future direction of stock prices and involves moving price averages and regressions. In practice, TA generally ignores the company behind a stock and—axiomatically—assumes that closing prices include all relevant stock information. Furthermore, according to TA, the future can be found in a stock's chart patterns, even though price is distinct from value, stocks have demand curves and margin costs that often differ from average and total cost per stock. Moreover, TA disregards the fact that stockholders get their yields by the general meeting's decided dividends to be paid-out.
Additionally, the growth in international hedge fund management has not only provided new investment opportunities, but also led to increasing transaction costs for investors. Oftentimes, hedge fund managers reap non-realized profit sharing from investors during bull markets, while taking little to no losses when bubbles burst, keeping investors locked-in. Other indirect transaction costs may include increasing prices, due to bad liquidity.
In view of the foregoing, there is a need for an improved valuation methodology that accounts for stockholder perspectives and that provides a coherent and consistent valuation to enhance the ability of investors, analysts, advisors and brokers to relate current market prices to a stock's financial track-record.
Furthermore, there is a need to be able to compare stocks, both domestically and across international markets and currencies.
Moreover, there is a need to provide such comparative stock valuation information on a global—stock exchange independent—basis, thereby enabling a more effective investment management practice to the benefit of financial investors, both institutional and other professional actors, as well as private.